Taxes: President Obama's budget would hit middle class

President Barack Obama rarely misses a chance to call on upper-income Americans to pay more taxes.

But his annual budget is doing more to target middle-class taxpayers than any of his previous proposals, calling for caps on deductions, changes in the way some tax benefits are calculated and a big hike in cigarette taxes — all proposals that would make middle-class Americans pay more.

“It’s a new paradigm,” said Bob Williams, a senior fellow at the nonpartisan Tax Policy Center. “This is the first budget he’s presented that has proposed raising taxes on people below the $250,000 thresholds he’s maintained over the past five years.”

It also has some Democrats worried, especially those who represent districts where their constituents make a good salary but don’t see themselves as rich stand to get hit.

“It’s a concern,” Rep. Allyson Schwartz, a Pennsylvania Democrat who represents some of Philadelphia’s suburbs, told POLITICO in reference to Obama’s proposed deduction cap. “For many people, the mortgage tax deduction is your biggest deduction. It’s very significant. And just as the housing market is coming back, there’s a question about the timing of that.”

Republicans are lapping up the proposals as evidence — despite Obama’s rhetoric — the administration won’t spare the middle class from higher taxes.

“The president keeps breaking his campaign pledge to not tax the middle class — first with his health care law and now with these tax hikes in his budget,” Utah Sen. Orrin Hatch, the top GOP member on the Finance Committee, told POLITICO. “As I’ve said before, when it comes to this White House and its penchant for wanting to raise taxes, everyone — including those middle-class families the president says he wants to help — needs to watch their wallets.”

Three proposals in the budget would hit the middle class in ways the president has not previously suggested.

The president’s proposal to change the way inflation is calculated means that benefits like the earned income tax credit would grow at a slower pace. His proposed deduction cap would hit people with taxable income as low as $183,000. And, policy experts say the budget plan to raise taxes on cigarettes is regressive.

Of course, the White House isn’t backing down from its demand that top earners should pay more taxes to get the deficit under control.

In fact, the administration went beyond proposing only recycled policies — such as the Buffett rule imposing a minimum 30 percent tax rate on income exceeding $1 million — by limiting the amount of tax-advantaged contributions that can be funneled into individual retirement accounts.

And Obama has made clear that he won’t back options like the so-called chained CPI, which has an impact on tax benefits, on a standalone basis. They must be included as part of a broader deficit-reduction deal that includes substantial revenue from the wealthy to win White House support.

An analysis released Monday by the Tax Policy Center shed new light on how the budget proposals would play out across the income spectrum.

Taxpayers earning more than $1 million would see their tax liabilities soar by an average of $82,604 in 2015.